Feds raid Caterpillar offices in tax investigation

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Federal officials seized documents and electronic records Thursday from three Caterpillar Inc. facilities, including the global headquarters in Peoria, Ill.

The investigation appears to stem from revelations about the company’s tax strategy as outlined in a 2009 federal wrongful termination lawsuit brought by Daniel Schlicksup, the Peoria Journal Star reported.

The lawsuit alleged that the company shifted profits overseas and to offshore shell companies to avoid paying more than $2 billion in U.S. taxes. Schlicksup settled the case in 2012.

Caterpillar, in its annual 10-K filing with the U.S. Securities and Exchange Commission last month, acknowledged a criminal investigation into the tax strategy.

The company said in a statement Thursday that the search warrant related to that issue, “among other things,” the newspaper reported.

In his complaint against Caterpillar, Schlicksup alleged that the company sold and shipped spare parts globally from its warehouse in Morton, Ill., while attributing at least $5.6 billion of profits from those sales to a unit in Geneva, Switzerland. The scheme, which allegedly operated from 2000 to 2009, was known as the “Swiss structure.” Caterpillar SARL is based in Geneva.

A different strategy, the “Bermuda structure,” allegedly involved shell companies that had no business operations returning profits to the United States without paying taxes on them.

The company denied the allegations.

The accusations, however, prompted an inquiry by an investigative panel of the U.S. Senate. The probe found that Caterpillar saved about $2.4 billion in taxes through the “Swiss structure” over 13 years. The Internal Revenue Service eventually proposed a $1 billion tax increase and penalties for the years 2007 to 2009. The company continues to contest the IRS penalties.

Caterpillar Inc. CEO Jim Umpleby sought to reassure employees on Thursday, according to the newspaper, which obtained a letter sent to workers.

“We believe today’s actions, while related to export filings, are connected in part to a previous matter related to our Switzerland-based subsidiary, CSARL, that has been under review for more than three years,” Umpleby said, according to the newspaper. “Because of the broad nature of today’s warrant, we don’t have enough information at this time to provide a full understanding of the authorities’ intent.

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